BMC: Who or what drew you to ophthalmology?
DAVID Alpern: We saw an opportunity to build a market-leading, clinically differentiated platform in a $12 billion market where there was no player of any reasonable scale. Our math showed us that, in a category with 18,000 licensed ophthalmologists, the largest practice nationwide approximated $50 million of physician fee schedule revenue, with only roughly 20 independent practices with greater than $20 million physician fee schedule revenue.
BMC: In the past 3 years, there’s been a large increase in the amount of private equity (PE) investment in eye care. What factors specific to eye care make it such an attractive target for PE investors?
Alpern: Where there is a successful outcome and where investors have demonstrated success, capital will follow. That plays out in a lot of subspecialties within health care services, given the virtues that consolidation can offer today’s independent physician—specifically, the health care services investment economy. What happened is when you have some success, people will pick up their pencil and write, “Why was Varsity interested? Why are other people interested in eye care?” And when you get underneath the cover, there’s some positive attributes for an investor.
There’s a $12 to $13 billion plus market for ophthalmic services and a fragmented provider base. There are 18,000 licensed ophthalmologists practicing, and nobody truly owns a significant share of that in terms of the competing practices and consolidators. The secular trends are positive.
Moreover, the reimbursement environment for eye care should be strong. It’s not care that’s viewed as discretionary. If you have a chronic eye abnormality, it’s hard to be a productive member in the economy or your community. This is a benefit that we expect insurers to continue to support.
BMC: Do you believe that heavy PE activity in eye care will continue, or will there be a cooling-off period?
Alpern: That’s a great question. For a cooling-off period, you’d have to argue for an event that would cool the investment community’s appetite, and I don’t see that event, other than what might be some poor execution of the recently developed ophthalmic consolidator platforms, which I have no reason to believe will happen.
People will stub their toe. You make 25 bets, it’s hard to believe that all 25 will go well in a given industry. What people will come to realize is operating within eye care isn’t risk-free. Ophthalmologists, in my own personal view, are in some ways fiercely independent providers. You have to take a delicate hand to engage and incentivize that audience and be a good listener so as to identify the true business processes that challenge and enable clinical excellence at a local level.
BMC: Can you talk about your early experience as an investment baking analyst and your transition into PE?
Alpern: I started my career in the late ‘90s on Wall Street, working for Credit Suisse First Boston as it was known then. It was an exciting time in the capital markets. The economy was on fire, fueled by the growth of technology. I saw many types of businesses rise quickly and succeed and, in other cases, fail.
I worked in investment banking until 2001, and at that time it became difficult in the capital markets. My old employer, which I loved working for, engaged in a significant merger with an investment banking firm. Given how turbulent it can be to put together two investment banking houses with different cultures, I began thinking about where my skills—financial analytical skills, and some reasonable capital markets expertise—would become most relevant. I leaned toward PE.
I went to work for GTCR, which is now a large PE fund and where I was first exposed to a meaningful amount of health care investing. Early in my career, I did a lot of provider-centric or exclusively provider consolidations. GTCR was adventurous and had been successful in health care services. A lot of what I’ve tried to make part of my playbook was learned at that firm. Seeing 20 to 30 specific types of practices is the best discovery process for an investor.
BMC: What is next for Varsity Health Partners?
Alpern: Not dissimilar from our mission in ophthalmology, which was the early innings of consolidation in that category, we just made an investment in orthopedic medicine, buying one of the largest practices in Florida, The Orthopedic Institute. This is in a space where there has been little PE presence where, not dissimilar from eye care, we see really good secular trends.
BMC: If you had to nominate one creative mind in ophthalmology, whom would it be and why?
Alpern: Ahmed Abdelsalam, MD, FACS, who was the owner of Chicagoland Retina Consultants, now part of EyeCare Services Partners. Ahmed, who serves as the chief medical officer, is constantly reeducating himself about innovation in patient care and has a pronounced entrepreneurial energy. He relocated from Egypt and built his life in the United States from the ground up. Now, he is a meaningful shareholder and an important leader for EyeCare Services Partners. Ahmed is just as innovative clinically as he is entrepreneurially. n
• Cofounder, Varsity Healthcare Partners, Los Angeles
• Financial disclosure: None